Wednesday, April 15, 2009

This is no way to build confidence that you are not headed for bankruptcy. The troubled PVC maker issued a press release earlier stating that it is withholding an interest payment:

Georgia Gulf Corporation (NYSE:GGC) today announced that it has received from its senior secured lenders an amendment to its senior secured credit agreement that allows the Company to withhold interest payments until May 11, 2009 on certain of its bonds. Accordingly, the Company announced today that it would withhold payment of $34.0 million of interest due April 15, 2009 for the 2014 senior notes and 2016 senior subordinated notes. These bonds are the subject of previously disclosed and currently pending private exchange offers. Under the indentures governing these bonds, the Company has a 30-day grace period to pay the withheld interest before the bondholders can seek remedies.

As of March 31, 2009, the Company had about $100.8 million of liquidity, consisting of $65 million of cash on hand as well as $35.8 million of borrowing capacity available under its revolving credit facility. Additionally, as of March 31, 2009, the Company had $81.4 million, or 47 percent outstanding under the new $175 million securitization facility.

New securitization facility? Impressive. Also the liquidity disclosure is critical when you are telling your creditors you can not pay them. But that is no surprise to lovers of PVC who have been following the deterioration at the troubled company.

What is surprising is that fellow PVC maker Olin Corp (HY rating BB+, Ba1), whose CDS hit a one year tight of 130 bps yesterday. Did I miss the point where the government put PVC production under the TARP umbrella? Granted, the debt or liquidity picture is not horrendous (yet), however pressures including SABIC murky ethylene strategy as well as a possible outright bankruptcy by GGC, should do more than their fair share of reprice risk perception in PVC in general and Olin in particular, which for the past two years has been caught in some nasty correlation trades. Will be one to follow closely.